In today’s modern economy, corporations are faced with many challenging new issues, not the least of which is minding their bits and bytes. Most of us, if not all, by now, have been confronted with a litigation hold and the challenges they can generate. But in case you are just awakening from a Rip Van Winkle-like nap, a litigation hold is a written notice advising corporations and custodians of electronically stored information (ESI) to preserve potentially relevant records and information that pertain to pending or anticipated litigation.

So with that refresher, the important question is: How do you cost effectively respond to a litigation hold? After all, litigation, especially electronic discovery in hotly contested litigation, can become quite expensive. As in-house counsel, you are responsible to effectively manage these costs and the company’s exposure. Below are a few tips to help you in this regard and at the same time assist in preserving the company’s bottom line:

1. Be Prompt.The duty to preserve information immediately arises upon receipt of a complaint or notice of a lawsuit, receipt of a subpoena as a third-party to an existing lawsuit, receipt of a formal order of investigation from a regulatory body, or knowledge of a potential claim. Failure to timely institute and maintain a litigation hold can have serious consequences, including monetary penalties, adverse jury instructions, preclusion of evidence, and in the worst cases, default judgment or dismissal. Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities. In other words, the worst thing—and potentially most costly thing—you can do is delay.

2. Define Scope.A typical litigation hold letter describes the litigation and the type of evidence that should be preserved. Be sure to understand the scope of the evidence that may become subject to the litigation, and identify the key personnel in your company affected by the litigation hold. Once you understand the scope, respond in writing (or have your counsel do so) stating the measures you are taking to identify and preserve relevant information. Responding in writing provides you with the important opportunity to establish the parameters of what you consider relevant and responsive to the litigation hold, and helps to shift the burden to the opposing party to articulate why those parameters should be broader. In addition, opening such dialogue with the opposing party creates a forum for reaching agreements as to the relevant scope early in the process which has proven to save companies both time and money. Obviously, the narrower the scope, the less costly and burdensome.

3. Have A Plan.Have an action plan in place for handling litigation holds and designate a team, including an IT professional, to be responsible for litigation holds. The litigation hold team should be able to promptly initiate the litigation hold action plan and work with key personnel involved in the litigation to identify the custodians of relevant records and notify them of the litigation hold. Keep in mind that relevant evidence may exist in paper or in today’s world more likely electronic form, and may be located in several places, including: employee files and workspaces, document warehouses; employee homes; emails and voicemails (both corporate and personal); company network storage; computer hard drives and external hard drives (both corporate and personal); corporate back-up tapes; and cellular telephones, PDA’s, and smart phones. Having a designated IT professional on your team who is knowledgeable in responding to litigation holds will help you manage the company’s exposure in the litigation and minimize disruptions to the general workforce.

4. Involve Others.Receipt of a litigation hold is, at a minimum, an obligation to preserve documents, and more likely, is notice of an impending lawsuit. Accordingly, you should immediately advise your liability insurer of possible litigation to avoid notice issues. Furthermore, inform your legal counsel, as he or she can help you frame the scope of potentially relevant information, respond to the party that sent the litigation hold, and assist you in documenting the steps you need to take to preserve relevant ESI. Finally, if your company is small or you do not have an IT professional who can be responsible for litigation holds, consider hiring a qualified ESI consultant. While the upfront cost of ESI consultants sometimes deters small companies from being proactive when faced with a litigation hold, such consulting costs have proven to represent a fraction of those costs and penalties that await the company that fails to take the necessary steps to comply with a litigation hold.

In sum, be proactive, not only in responding to a litigation hold, but in your day-to-day operations. When you are not subject to a litigation hold, review and update your company’s document retention policy, be efficient in your records retention practices, ensure your company’s policies and procedures are routinely followed, and have a plan to handle litigation holds, including designating a team to be responsible for litigation holds.

Litigation and discovery present a myriad of challenges for in-house counsel and these challenges typically are associated with high price tags. But by following these practical steps, you can lessen the financial burden imposed on your company while also avoiding monetary and other court imposed sanctions.